Case Study Analysis of Ethiopia
Participants: Abdulla Mammadli Zhe Lin Fanlu Zeng Tural Pasazade
Question 1
Ethiopia is the Federal Democratic Republic located in the landlocked area of East Africa. Here We are going to give some details about what makes Ethiopia attractive for foreign investments, what not. Pros –
- Despite many bloody years, at last since the mid-1990s, the new Ethiopian government embarked to open the economy and privatize the state-owned corporations with involving foreign and local private investors. As emphasized in the article, with its fast-growing economy Ethiopia had ranked 6th best country for market opportunities in sub-Saharan Africa.
- An intensive government investment in road infrastructure and power generation can make foreign investors willing invest in the country, as well as new rail and road corridors which connect a country with the seaports of Djibouti.
- In order to involve the foreign investments, including technology and knowledge, the government provides some tax exemptions up to five years and investors who are going to deal with manufacturing, agro-processing can enjoy them.
- The Ethiopian government gives also some customs exemptions for certain products, particularly capital goods such as plants, machinery, construction materials, etc.
Cons –
- The extensive government participation can be noticed in the economy of Ethiopia which causes monopoly in some spheres including telecommunications, power, financial services, air transport and so on. As a result of it, we can witness an unfair competition in the processes of dealing with state-owned companies, accessing credit, getting government tenders, etc.
- For the purpose of protecting domestic companies, it keeps some industries only for local enterprises like media, retail, pharmaceutical manufacturing, as well as financial sector.
- Another main lack of Ethiopia is the low protected property rights difficultness of getting foreign currency, because of minus trade balance.
Question 2
There are some important factors which should be considered in the process of decision-making whether to invest in Ethiopia or not.
- Considering what written in the article, we should mention infrastructure which is not that satisfactory, highly dependent on the port of Djibouti, costly. In addition to this, the power cuts can make more difficult for enterprises operate in the country.
- In terms of human resources Ethiopia can be categorized as a lucky country, because of the quite cheap labor force, where universities “produces” 10000 skilled graduates per year.
- There is ample evidence to suggest that Ethiopia is quite young country in the market economy which makes us think no more about a strong competition. Therefore, even newly created companies can easily get a significant market share in which the multinational ones have no any pre-advantage.
- The foreign investors can also face a big challenge with the distribution channels in which there are not the international retailers and the government lets only domestic firms to deal with wholesaling of import goods. Thus, without partnership with local entrepreneurs, it seems almost impossible to benefit from distribution networks.
- If we talk about investing in an Africa country such as Ethiopia where the wide variety of culture, language, customs certainly exist, we need to learn how to negotiate with those people.
- In the contemporary life, as the technology evolves, the undeveloped countries show less will in order to protect intellectual property rights, where the brand names can be easily used by others. That is why, this point can be notified as a disadvantage for Ethiopia as well.
- It is quite obvious that corruption is one of the core impediments in front of governments as well as in Ethiopia (111th position out of 177 countries issued by Transparency International 2013) which hinders investors to participate in the government tenders as pointed in the article.
In general, we take the view in order to invest in any country, firstly you need to make a PESTEL analysis of a country. So, from the perspective of politics, it can be noticed that Ethiopia is located in a place surrounded by countries which are not that stable and witnessed many wars including conflict between Ethiopia and Eritrea, as well as civil war in Sudan. This can be accepted as the detrimental factor by foreign investments.